Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 18: Household Labor Supply and Welfare Participation in Sweden

Lennart Flood, Jörgen Hansen () and Roger Wahlberg ()
Additional contact information
Lennart Flood: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Department of Economics., School of Economics and Commercial Law, Göteborg University, Box 640, SE 40530 GÖTEBORG
Jörgen Hansen: IZA, Postal: Box 7240, D-53072 Bonn, Germany
Roger Wahlberg: Department of Economics, School of Economics and Commercial Law, Göteborg University

Abstract: Using a sample of Swedish households, we estimate a household labor supply model assuming that preferences for consumption and leisure can be described by a direct translog utility function. The labor supply and welfare participation decisions are treated as a discrete choice problem, and we assume that these choices follow a simple conditional logit rule. In addition, we allow unobserved individual- specific effects to be correlated across alternatives. We assume that these unobserved effects are drawn from a discrete distribution, and the correlation across alternatives is modeled using factor-loading techniques. Classification error in hours is allowed for by using a multiplicative measurement error specification. The estimates from the structural model yield inelastic labor supply among husbands and positive wage elasticity for wives. Further, the cross elasticities are close to zero.

Keywords: Labor Supply; Welfare Participation; Unobserved Heterogeneity; Factor Loading; Tax Simulation.

JEL-codes: J22

27 pages, November 28, 1999

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